March 17 (Bloomberg) -- Actelion Ltd.’s shareholders should
oust board members and replace them with former executives from
Novartis AG and Merck KGaA, a hedge fund said as it stepped up
pressure on the biotechnology company to consider options,
including a sale.

Elliott Advisors (UK) Ltd. nominated James Shannon, the
former head of global development at Novartis, as chairman of
the Actelion board, and also proposed five other directors, the
fund said today in a statement. Today is the deadline for
shareholders to submit agenda items for the Allschwil,
Switzerland-based company’s May 5 annual meeting.

The proposal sets up a contest between Elliott, part of a
$17 billion hedge fund founded by Paul Singer, and Actelion to
win over shareholders. Elliott has retained proxy adviser
Georgeson, while Actelion hired Goldman Sachs Group Inc. and
Wachtell Lipton Rosen & Katz to help defeat Elliott.

“The first thing I would do is put all options back on the
table, including a merger, including acquisition of other
companies or late-stage or marketed products,” Shannon said in
a telephone interview. While Actelion “fundamentally is
sound,” waiting until a shareholder meeting in 2012 wouldn’t
leave enough time to make changes, he said.

Actelion’s board has taken note of Elliott’s requests and
will provide shareholders with the full list of agenda items and
recommendations “in due course,” the company said in an e-mailed statement.

Elliott’s Nominees

Elliott, whose 6 percent stake makes it Actelion’s biggest
shareholder, sent two letters to the drugmaker’s board last
month, asking the company to study a sale and disclose any
takeover approaches. Elliott also said Actelion Chairman Robert
Cawthorn should resign and Chief Executive Officer Jean-Paul
Clozel, who helped found the company in 1997, should leave the
board.

Elliott’s list of nominees may not win over undecided
shareholders, Olav Zilian, an analyst at Helvea SA in Geneva,
said in a telephone interview.

Amgen, Genentech

“They don’t have a stellar track record and they needed
that,” Zilian said. “They should have brought in retired
executives from companies such as Amgen and Genentech, where you
can claim that they’re experienced in the biotech field and have
that entrepreneurial spirit.”

Actelion contends the drugmaker should remain independent
so shareholders can benefit from the value of new medicines such
as the macitentan lung treatment. Clozel has said Actelion will
be a “completely different company” by the end of 2011 because
of the experimental therapy, which is in clinical testing. The
Swiss drugmaker has also said Elliott’s proposals risk
“destabilizing” Actelion.

People with knowledge of the situation said in November
that Amgen Inc., the world’s biggest biotech company, was
considering a takeover bid for Actelion.

Shannon, a physician by training, worked at Novartis for 14
years, according to Elliott. He sits on the boards of South San
Francisco-based Cerimon Pharmaceuticals Inc. and Biotie
Therapies Oyj.

Shift to Macitentan

Actelion got about 85 percent of its 1.93 billion Swiss
francs ($2.14 billion) in revenue last year from sales of the
Tracleer medicine, which treats a lung condition known as
pulmonary arterial hypertension. Macitentan would be a successor
to Tracleer, which begins to lose patent protection in 2015.

Efforts to reduce reliance on Tracleer have faltered after
a slew of clinical trial setbacks. The drug failed a test to
widen its use last year, while another treatment, clazosentan,
didn’t help patients in a study who had suffered from bleeding
in the brain.

“They have played two late-stage development cards and so
far both of those have failed,” Shannon said. “Really they’re
left with one significant late-stage card to turn over and that
card, macitentan, still carries significant regulatory risks but
even more significant are the commercial risks.”

It can be difficult to replace a “very good” product with
a new medicine that could be much more expensive, he said.

Annual Re-Election

Elliott proposed today that all directors should go through
annual re-election and that the chairman of the board be elected
by shareholders. The fund also is seeking information or a
“special investigation” to clarify whether Actelion has
received any takeover approaches since the start of 2010 and how
any such approaches were handled.

Actelion’s stock lost almost a third of its value in the
first nine months of last year, and Clozel said the development
setbacks made the company more vulnerable to a takeover. The
stock has jumped 21 percent since then on speculation a
drugmaker would try to buy Actelion. The shares fell 40
centimes, or 0.8 percent, to 48.20 francs in Zurich trading.

The drugmaker halted development of an experimental
insomnia pill because of concern that patients wouldn’t be able
to tolerate the medicine, the company said Jan. 28.

Elliott said March 7 it started a website to help investors
register their shares and vote at the May 5 meeting. Later that
day, Rudolf Maag, who owns 4.2 percent of Actelion’s shares,
said he “fully supports” the company’s strategy.

Of the nine board members, Elliott is proposing the ouster
of Juhani Anttila, Werner Henrich, Michael Jacobi, Armin Kessler
and Jean Malo in addition to Clozel and Cawthorn. The fund
“supports the retention” of current board members Joseph
Scodari and Carl Feldbaum, according to the website started by
Elliott.